Q4 2021 Tyson Foods Inc Earnings Call

November 15, 2021

At Tyson, we remain committed to this simple promise to always keep it real to always keep it Tyson.

[music].

Our craftsman begin each day perfectly seasoning, our <unk> farm smoked sausage, so by simply adding the right ingredients you can end each day crafting a perfectly delicious dinner.

Back in 1935, John Tysons motto was when better chickens are hatched, we will hedge them.

It's why today all of the Tyson chicken.

Good day, and welcome to the Tyson Foods fourth-quarter earnings Conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. And to withdraw your question. Please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Megan Britt, Vice President of Investor Relations. Please go ahead, ma'am.

Loan and to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to Megan Britt Vice President of Investor Relations. Please go ahead ma'am.

Hello, and welcome to the fourth quarter fiscal 2021 earnings conference call for Tyson Foods. Prepared remarks today will be provided by Donnie King President and Chief Executive Officer, and Stewart Glendinning, EVP and Chief Financial Officer.

Additionally, David Bray Group, President Poultry, Noelle Omara group, President prepared foods, and Shane Miller Group President fresh meats will join the live Q&A session.

We have prepared presentation slides to supplement our remarks and these are available on the Investor Relations section of the Tyson website and through the link to our webcast.

During this call, we will make forward-looking statements regarding our expectations for the future. These statements are subject to risks uncertainties and assumptions, which may cause actual results to differ materially from our current projections.

Please refer to our forward-looking statement disclaimers on slide two as well as our SEC filings for additional information concerning risk factors that could cause our actual results to differ materially from our projections.

Please note that references to earnings per share, operating income and operating margin and our remarks are on an adjusted basis unless otherwise noted. For reconciliations on these non-GAAP measures to their corresponding GAAP measures, please refer to our earnings press release. I'll now turn the call over to Dani.

For reconciliations on these non-GAAP measures to their corresponding GAAP measures. Please refer to our earnings press release, I'll now turn the call over to Dani.

Thank you, Megan. I'll start by saying that the safety of our team members continues to be our top priority and I'm very pleased that we now have a team in the US that is fully vaccinated. As we focus on meeting the needs of our customers and consumers, vaccination is the best way that we can protect our team members from the impacts related to COVID-19 and ensure business continuity.

<unk> and ensure business continuity.

Earlier today, we reported strong fourth quarter and fiscal year 2021 results. We delivered double-digit sales and earnings growth in a challenging year. Our performance was supported by continued strength in consumer demand for protein.

We delivered double digit sales and earnings growth in a challenging year.

Our performance was supported by continued strength in consumer demand for protein or.

Our retail core business lines, which include our iconic brands Tyson, Jimmy Dean, Hillshire farm and ballpark have driven strong share growth in the retail channel, delivering 13 quarters of consecutive growth. Continued recovery in the foodservice channel led by QSRs also supported our strong results. Overall, we saw our volume recover in the second half from the pandemic Lowe's to finish the fiscal year only slightly down.

Continued recovery in the foodservice channel led by <unk> also supported our strong results overall, we saw our volume recover in the second half from the pandemic Lowe's to finish the fiscal year only slightly down.

We are taking several deliberate actions by segment to improve our volumes, including investing behind capacities, brand and product innovation and our team members. Our investments in team members include our successful vaccination mandate as well as automation and technology initiatives that I'll discuss in a moment.

The construction of the 12 new plants that we've mentioned previously are progressing well and once complete will enable Tyson to address capacity constraints and growing global demand for protein. These new capacities include nine chicken plants, two case-ready beef and pork plants and one new bacon plant.

These new capacities include nine chicken plants, two case ready beef and pork plants and one new Bacon plant.

In parallel to our actions to improve volume, we have also worked to recover inflation through pricing, achieving a 13% price improvement for the fiscal year and a 24% increase for the fourth quarter. In this dynamic environment, we will be aggressive in monitoring inflation and driving price recovery activities.

In this dynamic environment, we will be aggressive in monitoring inflation and driving price recovery activities.

And the diversity of our portfolio showed its value again this quarter as demonstrated by earnings. Performance in our beef segment supported the delivery of a strong fiscal year earnings result. Our performance has allowed us to build financial strength. Our balance sheet is strong, resilient and provides Tyson the optionality needed to pursue strategic growth priorities.

Our performance has allowed us to build financial strength.

Our balance sheet is strong resilient and provides tyson the optionality needed to pursue strategic growth priorities.

And to that point, our investment in future growth across our portfolio continue. We demonstrated resilience in the fiscal year 2021, and we're entering fiscal 2022 with tremendous momentum. Our results demonstrate the dedication of our global team, the importance of our diverse portfolio strategy and our ability to meet consumer demand across proteins channels and meal occasions.

We demonstrated resilience in fiscal year 2021, and we're entering fiscal 2022 with tremendous momentum.

Our results demonstrate the dedication of our global team the importance of our diverse portfolio strategy and our ability to meet consumer demand across proteins channels and meal occasions.

Now turning to financial results, let me give you some highlights overall. I was pleased with both a strong quarter and full-year. Sales improved 20% in the fourth quarter and 11% during the full year. Our sales gains were largely driven by higher average sales price.

Our sales gains were largely driven by higher average sales price.

Average sales price trends reflect successful pricing strategies during the ongoing inflationary environment, but we still have opportunities specifically in prepared foods, where we delivered softer results than anticipated.

Like many other companies, we were faced with a range of higher levels of inflation, notably higher grains labor and transportation costs. Our teams have worked together with our customers to pass along that inflation through price increases.

On volume, we saw improvement in the second half relative to the same period last year. Volumes were up 3% for the second half. Or nearly 350 million pounds.

Volumes were up 3% for the second half.

Our nearly 350 million pounds.

Although we are working diligently to achieve optimal throughput across our segments, labor challenges are still impacting our volumes and ability to achieve optimal mix across our processing footprint. Having said that, we're taking aggressive actions as a team to address the labor constraints and we're seeing improvements.

We delivered solid operating income performance up 26% during the fourth quarter and 42% for the full year. This performance was largely due to strength in our beef segment, where continued strong consumer demand and ample cattle supply have driven higher earnings.

Overall, our operating income performance translated to earnings per share of $2.30 for the fourth quarter up 35% and $8.28 for the full year up 53%. Looking at our results on volume, we're taking aggressive actions to optimize our existing footprint at new capacity adjust our product mix by plant and match our portfolio more closely with customer and consumer needs.

Looking at our results on volume, we're taking aggressive actions to optimize our existing footprint at new capacity adjust our product mix by plant and match our portfolio more closely with customer and consumer needs.

For the fiscal year, our volume was down slightly. Customer demand during fiscal '21 outpaced our ability to supply products, but we're working aggressively to fill that void. We recognize how important service levels are to our customers and we're committed to improving our fill rates and reliability of supply.

With respect to supply, we have focused on ensuring our ability to maintain business continuity. And our team has been resilient in the face of numerous supply chain challenges.

And our team has been resilient in the face of numerous supply chain challenges.

As we look toward fiscal '22, improving volumes will be key to delivering against our commitments. We expect to grow our total company volumes by 2% to 3% next year, outpacing overall protein consumption growth. A large percentage of that growth will come from the chicken segment.

And across our business, we're working to optimize our product portfolio, remove complexities, enhance capacities and pursue operational improvement initiatives to deliver against these volume growth objectives.

Moving now to slide six. We acknowledge the challenging and competitive labor environment, and it's no secret that we want to be the most sought after place to work. We fully understand that this starts with an unrelenting focus on safety every minute every shift every day. The health safety and wellness of our team members has been and will continue to be our top priority.

We acknowledge the challenging and competitive labor environment, and it's no secret that we want to be the most sought after place to work.

We fully understand that this starts with an unrelenting focus on safety every minute every shift every day.

The health safety and wellness of our team members has been and will continue to be our top priority.

So I'd like to take a minute to stop and commend our team members and our leadership team for doing their part to keep themselves their colleagues their families and our community safe. Which has helped us reach our vaccination goals. With vaccines and investments in COVID-19 protection measures are certainly not the only actions that we've taken to become the most sought after place to work.

The most sought after place to work too.

To ensure that every Tyson team member feels as though they can bring their true and complete self to work each day, we've invested behind diversity equity and inclusion efforts.

And we also understand the importance of a strong compensation offering. And we believe that we hold a leadership position in this space. We have raised wages and across our business today, we pay an average of $24 per hour, which includes full medical, vision, dental and other benefits like access to retirement plan and sick pay.

And we will continue to explore other innovative benefit offerings that remove barriers and make our team members' lives easier. We're also accelerating investments in automation and advanced technologies to make existing roads safer and easier while reducing costs. We're confident that our actions will increase Tyson staffing levels and position us for volume growth.

We're also accelerating investments in automation and advanced technologies to make existing roads safer and easier while reducing costs. We're confident that our actions will increase tyson staffing levels and position us for volume growth.

Relating to operational excellence and market competitiveness, today we are announcing the launch of a new productivity program designed to drive a better, faster and more agile organization that is supported by a culture of continuous improvement and faster decision making. The program is targeted to deliver $1 billion in recurring productivity savings by the end of fiscal '24, relative to the fiscal '21 cost baseline. These savings are included in the guidance expectations and Stuart will share in a moment.

The program is targeted to deliver $1 billion in recurring productivity savings by the end of fiscal '24, relative to the fiscal '21 cost baseline. These savings are included in the guidance expectations and Stuart will share in a moment.

Execution of the effort will be supported by a program management office that will ensure delivery of key project milestones and report on savings achievements connected to three imperatives. The first is operational and functional excellence and is targeted to deliver greater than $300 million in recurring savings. This includes functional efficiency efforts in finance, HR and procurement that are focused on applying best practices to reduce cost. The second is digital solutions, which is targeted to deliver more than $250 million in recurring savings. We will achieve this goal by leveraging new digital solutions like artificial intelligence and predictive analytics to drive efficiency in operations supply chain planning logistics and warehousing. For example, we're using technology to ensure that our shipments are optimally loaded to save freight cost and enhance customer service levels. In many ways, the pandemic has already accelerated our push to more digital footing and our commitment in this space will continue that focus.

The first is operational and functional excellence and is targeted to deliver greater than $300 million in recurring savings. This includes functional efficiency efforts in finance HR and procurement that are focused on applying best practices to reduce cost. The second is digital solutions, which is targeted to deliver more than 200.

in recurring savings. We will achieve this goal by leveraging new digital solutions like artificial intelligence and predictive analytics to drive efficiency in operations supply chain planning logistics and warehousing. For example, we're using technology to ensure that our shipments are optimally loaded to save freight

cost and enhance customer service levels. In many ways, the pandemic has already accelerated our push to more digital footing and our commitment in this space will continue that focus.

The third is automation. We will leverage automation and robotics technologies to automate difficult and higher turnover positions. For example, we have substantial opportunity to automate the depot and process within our poultry harvest facilities using a combination of both third-party and proprietary technologies.

We will leverage automation and robotics technologies to automate difficult and higher turnover positions. For example, we have substantial opportunity to automate the depot and process within our poultry harvest facilities using a combination of both third party and proprietary technologies.

Chicken remains a top priority for me personally and for our company. We continue to execute against our road map to bring operating income margin to at least the 5% to 7% range on a run-rate basis by mid fiscal '22. Our goal has not changed and we remain committed to restoring top tier performance.

Our goal has not changed and we remain committed to restoring top tier performance.

The first imperative is to be the most sought after place to work. I've outlined the investments we're making to enhance our team member experience in my earlier comments. This will ensure that we have the right levels of staffing to fulfill our customer orders on time and in full.

The second imperative is to improve operational performance. Critical to improving operational performance is maximizing our fixed cost leverage which means having enough birds and our internal networks to run our plants full.

Our reconfiguring and optimizing our existing footprint, we can increase our harvest capacity by more than 10% without building another plant. In addition, we have clear initiatives to remove complexity from our plant reduce transportation and handling and minimize waste. Our operational improvements will unlock significant unused capacity in our network and take advantage of the fixed cost leverage.

In addition, we have clear initiatives to remove complexity from our plant reduce transportation and handling and minimize waste.

Our operational improvements will unlock significant unused capacity in our network and take advantage of the fixed cost leverage.

Each of these initiatives will support leading operational performance from our chicken business in the future. Patch rates have impacted our ability to do this and we've shared the initiatives underway to correct this. Our new mail rollout is progressing as planned and we believe we've hit the inflection point that will lead to sequential improvements through the entirety of fiscal 2022. The new male rollout at our pullet firms is nearly complete and we continue to observe improved hatch rates associated with these new males.

Patch rates have impacted our ability to do this and we've shared the initiatives underway to correct. This our new mail rollout is progressing as planned and we believe we've hit the inflection point that will lead to sequential improvements through the entirety of fiscal 2022 the new male rollout at our pullet firms is nearly complete and we continue to observe.

Improved hatch rates associated with these new males.

We've also mentioned how strength in spot prices for commodity chicken products throughout the fiscal year is put our buy versus grow program had a relative disadvantage versus history. From Q3 to Q4, we again reduced our rate of outside purchases. This time by nearly 30%. The final imperative is to service our customers on time and in full.

The final imperative is to service our customers on time and in full Tyson.

Tyson branded value-added product offerings have continued to gain share during both the fourth quarter in the latest 52 weeks and new capacity expansions will help us maintain momentum. Inflation has clearly had an impact on the business. Our commercial teams have successfully pursued inflation justified pricing delivering topline growth for the business to offset the cost increases. As rates of inflation continue, so will our pricing actions with an equivalent level of emphasis on disciplined operational execution and volume throughput.

Inflation has clearly had an impact on the business. Our commercial teams have successfully pursued inflation justified pricing delivering topline growth for the business to offset the cost increases as rates of inflation continue so will our pricing actions with an equivalent level of emphasis on disciplined operational execution.

And volume throughput.

We will staff our plants, service our customers grow volumes and be the best chicken business. The plan we have in place is still the right plan and our level of confidence conviction and excitement as a team continue to grow. Looking forward to the fiscal year 2022, I feel confident in our ability to drive value creation.

Looking forward to fiscal year, 2022, I feel confident in our ability to drive value creation.

We have strong consumer demand, a powerful and diverse portfolio across geographies and channels and a team that is positioned to take advantage of the opportunities in front of us. Our priorities are clear, winning with customers and consumers, winning with team members and winning with excellence in execution. With these priorities as our guide, we are taking aggressive actions to accelerate our growth relative to the overall market, improve operating margins and drive stronger returns on invested capital.

with team members and winning with excellence in execution. With these priorities as our guide, we are taking aggressive actions to accelerate our growth relative to the overall market, improve operating margins and drive stronger returns on invested capital.

We are committed to our team members with a focus on ensuring their health safety and wellbeing as well as ensuring an inclusive and equitable work environment every shift every day every location with no exceptions. We have shown that we're willing to take bold actions in support of this commitment.

Second, we are working to enhance our portfolio and capacity to better serve demand. This includes increasing the contribution of branded in value-added sales by focusing our product portfolio and by adding capacity to meet demand. We expect our volume to outpace the market in the intermediate-term.

Third, we are aggressively restoring competitiveness in our chicken segment. This starts by returning our operating margin to the 5% to 7% level by the middle of fiscal 2022. Fourth, we are driving operational and functional excellence in investing in digital and automation initiatives. This is at the heart of our new productivity program. We are working diligently to drive out waste, minimize bureaucracy, enhance decision making speed across the organization.

productivity program. We are working diligently to drive out waste, minimize bureaucracy, enhance decision making speed across the organization.

And finally, to address expected demand growth over the next decade, we are using our financial strength to invest in our business through both organic investments and strategic M&A. On capital alone, we expect to invest $2 billion in fiscal year '22 with a disproportionate share focused on new capacity and automation objectives.

On capital alone, we expect to invest $2 billion in fiscal year 'twenty, two with a disproportionate share focused on new capacity and automation objectives.

Tyson has the right portfolio, the consumer-driven insights and the scale and the capabilities to win in the marketplace across proteins, channels and relocations. We also have the financial strength to invest behind our business to accelerate growth and to maintain our momentum.

I look forward to sharing with you our progress as we work through the year and I'll be sharing more details with you at our Investor day in a few weeks. I will now turn the call over to Stewart to walk us through our financial results in detail.

I will now turn the call over to Stuart to walk us through our financial results in detail.

Thank you, Donnie, let me turn first to a summary of our total company financial results. We're pleased to report a strong overall finish to the year. Sales were up approximately 20% in the fourth quarter largely a function of our successful pricing initiatives that were pursued to offset inflationary pressures. Volumes were down 4% during the fourth quarter primarily due to labor challenges, hampering our efforts to fully benefit from strong retail demand and recovery in food service.

Primarily due to labor challenges hampering our efforts to fully benefit from strong retail demand and recovery in foodservice.

Fourth-quarter operating income of nearly $1.2 billion was up 26% due to continued strong performance in our beef business. For the full-year operating income improved to nearly $4.3 billion up 42%. Driven by the strength in operating income, fourth-quarter EPS grew 35% to $2.30. With the full year up 53% to $8.28.

For the full year operating income improved to nearly $4 3 billion up 42%.

Driven by the strength in operating income fourth quarter, EPS grew 35% to $2 30.

With the full year up 53% to $8 and 28.

Slide 11 bridges, our total company sales for fiscal year '21. Sales dollars were up across all segments, as you can see the most substantial sales dollars benefit came from the beef segment, which saw market conditions that led to a wider than historical cutout margin.

Sales dollars were up across all segments as you can see the most substantial sales dollars benefit came from the beef segment, which saw market conditions that led to a wider than historical cut out margin.

At the same time, we saw price increases across the business to offset the high levels of inflation we faced. Looking at our channel results, sales at retail drove a $1 billion of topline improvement versus last year, even after exceptionally strong volumes in the comparable period.

Looking at our channel results sales at retail drove a $1 billion of topline improvement versus last year, even after exceptionally strong volumes in the comparable period.

Improvements in sales through the foodservice channel drove an increase of $1.6 billion and our fiscal year export sales were nearly $1 billion stronger than the prior year as we leveraged our global scale to grow our business.

Slide 12 bridges year to date operating income, which was about $1.3 billion higher than fiscal 2020. As I mentioned previously, volumes were down slightly during the year. Primarily a result of the challenging labor environment.

As I mentioned previously volumes were down slightly during the year.

Primarily a result of the challenging labor environment.

Our pricing actions and strength in the beef segment led to approximately $5.6 billion of sales price mix benefit, which more than offset the higher Cogs price mix up $4.6 billion. We saw inflation across the business, notable areas wherein wages grain costs live animal costs in pork, meat cost in prepared foods and freight costs across the enterprise.

We saw inflation across the business, notable areas wherein wages grain costs live animal costs in pork, meat cost in prepared foods and freight costs across the enterprise.

Incremental direct COVID-19 costs were favorable by approximately $200 million during the year, although our total spending of $335 million was still substantial. The decrease was driven primarily by cycling onetime bonuses that were paid last year and a large portion of that was reinvested in permanent wage increases for our team members this year. Lower onetime bonus costs were partially offset by higher testing and vaccination costs incurred during fiscal 2021.

The decrease was driven primarily by cycling onetime bonuses that were paid last year and a large portion of that was reinvested in permanent wage increases for our team members. This year.

Lower onetime bonus costs were partially offset by higher testing and vaccination costs incurred during fiscal 2021.

While these costs are expected to reduce in fiscal '22, we will continue to spend against initiatives to keep our team members safe. And finally, SG&A was over $100 million favorable to prior year, which was largely a result of a net benefit associated with the beef supply of fraud. Now moving to the beef segment. Segment in sales were over $5 billion for the quarter up 26% versus the same period last year.

<unk> sales were over $5 billion for the quarter up 26% versus the same period last year.

Key sales drivers included strong domestic and export demand for beef products. Offsetting higher sales prices were higher cattle costs up more than 20% during the fourth quarter. We had ample livestock available in the quarter driven by strong front end supplies. And we have good visibility into cattle availability through fiscal '22 and currently believe it will also be sufficient to support our customer needs.

Offsetting higher sales prices were higher cattle costs up more than 20% during the fourth quarter.

We had ample livestock available in the quarter driven by strong front end supplies and.

And we have good visibility into cattle availability through fiscal 'twenty two and currently believe it will also be sufficient to support our customer needs.

Sales volume for the quarter was up year over year due to continued strong demand in contrast to a soft comparable period a year ago, driven by lower production volumes. We delivered segment operating income of $1.1 billion or 22.9% for the fourth quarter.

We delivered segment operating income of $1 $1 billion or 22, 9% for the fourth quarter.

This improvement was driven by strong global demand for beef products and a higher cut out which were partially offset by higher operating costs.

While our beef segment experienced strong results during the quarter and fiscal year, we are still not at optimal levels of capacity throughput due to labor challenges, which we expect to normalize over the course of fiscal '22.

Now, let's move on to the pork segment on slide 14. Segment sales were over $1.6 billion for the quarter, up 30% versus the same period last year. Key sales drivers for the segment included higher average sales price due to strong demand and increased hog costs, partially offset by a challenging labor environment. Average sales price increased more than 40%. Our volumes were down relative to the same period last year. Segment operating income was $78 million for the quarter down 52% versus the comparable period.

Segment sales were over $1 6 billion for the quarter up 30% versus the same period last year.

Key sales drivers for the segment included higher average sales price due to strong demand and increased hog costs, partially offset by a challenging labor environment.

Average sales price increased more than 40%.

Volumes were down relative to the same period last year.

Segment operating income was $78 million for the quarter down 52% versus the comparable period.

Overall, operating margins for the segment declined to 4.7% for the quarter. The operating income decline was driven by higher hog costs and increased labor and freight costs. Moving now to prepared foods. Sales were $2.3 billion for the quarter up 7% relative to the same period last year. Total volume was down 5.7% in the quarter. With strength in the retail channel and continued recovery in foodservice more than offset by labor challenges. Sales growth outpaced volume growth driven by inflation justified pricing and better sales mix.

The operating income decline was driven by higher hog costs and increased labor and freight costs.

Moving now to prepared foods sales were $2 3 billion for the quarter up 7% relative to the same period last year.

Total volume was down five 7% in the quarter with.

With strength in the retail channel and continued recovery in foodservice more than offset by labor challenges. Sales growth outpaced volume growth driven by inflation justified pricing and better sales mix.

<unk> growth outpaced volume growth driven by inflation justified pricing and better sales mix.

During the fourth quarter, retail core business lines experienced the 13th straight quarter of volume share growth driven by consumer demand for our brands and continued strong brand execution by our team. Operating margins for the segment were 1.7% or $39 million for the fourth quarter.

Operating margins for the segment were one 7% or $39 million for the fourth quarter.

The slowdown in segment operating margins versus the same quarter last year was driven by significant increases in raw material input costs that we were not able to fully recover through price during the quarter. For the full-year operating income margin was 7.6% was $672 million. As we mentioned last quarter, the ongoing inflationary environment created a meaningful headwind for prepared foods during the fourth quarter. Raw material costs, logistics, ingredients, packaging and labor have increased our cost of production.

For the full year operating income margin was seven 6% was $672 million.

As we mentioned last quarter, the ongoing inflationary environment created a meaningful headwind for prepared foods during the fourth quarter.

Raw material costs logistics ingredients packaging and labor have.

We have increased our cost of production.

We've executed pricing, revenue management and congressional spend optimization initiatives while ensuring the continued development of brand equities for marketing and trade support. We expect to take continued pricing actions to ensure that any inflationary cost increases that are business incurs a past alone. Our pricing has lagged inflation, but we expect to recover those cost increases during fiscal '22.

We expect to take continued pricing actions to ensure that any inflationary cost increases that are business incurs a past alone.

Our pricing has lagged inflation, but we expect to recover those cost increases during fiscal 'twenty two.

Moving into the chicken segment's results. Sales of $3.9 billion for the fourth quarter up 21%. Volumes improved 1.3% in the quarter as strong consumer demand offset both labor challenges and the detrimental impact of a fire at our hands still rendering facility. Our teams have been focused on streamlining our plans to deliver higher volumes.

Volumes improved one 3% in the quarter as strong consumer demand offset both labor challenges and the detrimental impact of a fire at our hands still rendering facility.

Our teams have been focused on streamlining our plans to deliver higher volumes.

And we expect to deliver substantial volume improvements in fiscal '22 as the hatch rate recovers and we operate our plants more efficiently. Average sales price improved over 20% in the fourth quarter and 11.4% for the fiscal year compared to the same periods last year. This increase is due to favorable product mix and price recovery to offset cost inflation.

Average sales price improved over 20% in the fourth quarter and 11, 4% for the fiscal year compared to the same periods last year.

This increase is due to favorable product mix and price recovery to offset cost inflation.

Our pricing has admittedly lagged our realization of cost inflation, but we made tremendous progress in the last few months to close that gap and are now seeing those benefits. We have restructured our pricing strategies, given our experience in fiscal '21 to ensure that we have the flexibility to better respond to market and inflationary conditions.

We have restructured our pricing strategies, given our experience in fiscal 'twenty, one to ensure that we have the flexibility to better respond to market an inflationary conditions.

Chicken experienced an operating loss of $113 million in the fourth quarter. The segment earned $24 million, representing an operating margin of 2% for the fiscal year 2021. Operating income was negatively impacted by $945 million of higher feed ingredient costs go rollout expenses and outside meat purchases.

Segment earned $24 million, representing an operating margin of 2% for the fiscal year 2021.

Operating income was negatively impacted by $945 million of higher feed ingredient costs go rollout expenses and outside meat purchases.

For the fourth quarter feed ingredients were $325 million higher than the same period last year. Segment performance also reflects net derivative losses of $75 million during the fourth quarter. Which was $120 million worse than in the same period last year.

Segment performance also reflects net derivative losses of $75 million during the fourth quarter.

Which was $120 million worse than in the same period last year.

Turning to slide 17. In pursuit of our priority to build financial strength and flexibility, we have substantially de levered our business over the past 12 months. Reducing leverage to one-two times net debt to adjusted EBITDA as we paid down $2 billion of debt while growing our earnings and cash flow.

And proceeded about priority to build financial strength and flexibility, we have substantially de levered our business over the past 12 months.

Using leverage to one two times net debt to adjusted EBITDA as we paid down $2 billion of debt, while growing our earnings and cash flow.

Investing organically in our business will continue to be an important priority and will help tighten increased production capacity and market capabilities. Each of these levers will support strong return generation for our shareholders. We will also continue to explore a path to optimize our portfolio through M&A through the lenses of value creation and shareholder return.

Each of these levers will support strong return generation for our shareholders.

We will also continue to explore a path to optimize our portfolio through M&A through the lenses of value creation and shareholder return.

Finally, as our track record has demonstrated we are committed to returning cash to shareholders through both dividends and share buybacks. We're pleased to announce that last week, our board approved a 6 cent increase to our annual dividend payment. Now totaling $1.84 per class a share.

We're pleased to announce that last week, our board approved a 6% increase to our annual dividend payment.

Now totaling $1 84 per class a share.

Let's now discuss the fiscal '22 financial outlook. We currently anticipate total company sales between $49 and $51 billion. Which translate to sales growth of between 5% and 7%. We expect 2% to 3% volume growth on a year over year basis, as we work to optimize our existing footprint and run our plants full.

We currently anticipate total company sales between 49 and 51 billion.

Which translate to sales growth of between 5% and 7%.

We expect 2% to 3% volume growth on a year over year basis, as we work to optimize our existing footprint and run our plants full.

Our new productivity initiative is expected to deliver $300 million to $400 million of savings during fiscal '22, driven by operational and functional excellence initiatives. The rollout of digital solutions across the enterprise and extensive automation projects that are currently underway.

The rollout of digital solutions across the enterprise and extensive automation projects that are currently underway.

Yes.

Now as we look at the organic growth opportunities ahead for our business, we expect a meaningful increase in Capex spending to pursue a healthy pipeline of projects with strong return profiles.

We currently anticipate Capex spending of approximately $2 billion during fiscal '22, an increase of roughly $800 million. This investment will support our initiatives to meet global protein demand growth into the future, allow us to gain share. And we will deliver strong financial returns for our shareholders.

This investment will support our initiatives to meet global protein demand growth into the future.

Allow us to gain share.

We will deliver strong financial returns for our shareholders.

Excluding the impact of changes from potential tax legislation. We currently expect our adjusted tax rate to be around 23%. We anticipate net interest expense of approximately $380 million because of intentional deleveraging during fiscal '21.

We anticipate net interest expense of approximately $380 million because of intentional deleveraging during fiscal 'twenty one.

Liquidity is expected to significantly exceed our target while net leverage is expected to remain well below two times net debt to adjusted EBITDA. It is important to note though that over the last two years working capital has been a source of cash. We don't expect this to be the case in fiscal '22.

It is important to note though that over the last two years working capital has been a source of cash. We don't expect this to be the case in fiscal '22.

Moving forward our business growth will require increased working capital, which combined with deferred tax payments under the cares act, taxes on the gain of the pet treats divestiture, litigation settlements and other discrete items will lead to a substantial use of cash during fiscal 2022.

Now, let's look at how each of our segments will contribute to that total company performance. Prepared foods is expected to deliver margins during fiscal '22 of between 7% and 9%.

Prepared foods is expected to deliver margins during fiscal 'twenty two of between seven and 9%.

We will remain disciplined and agile in our pricing initiatives to ensure that any additional inflationary pressures are passed along to customers. While also working diligently to deliver productivity savings to reduce costs.

While also working diligently to deliver productivity savings to reduce costs.

We expect the beef segment to continue to show strength due to prolonged industry dynamics. Leading to segment margins of between 9% and 11%. We expect the front half of the year to be meaningfully stronger than the back half as industry and labor conditions are expected to normalize partway through the year. In chicken, our operational turnaround is working and. And we still expect to achieve run-rate profitability of 5% to 7% by the middle of the year.

Leading to segment margins of between nine and 11%.

We expect the front half of the year to be meaningfully stronger than the back half as industry and labor conditions are expected to normalize partway through the year.

And chicken our operational turnaround is working and.

And we still expect to achieve run rate profitability of 5% to 7% by the middle of the year.

We expect this will be achieved through sequential quarterly margin improvements during the first half of the year. Resulting in full-year margins that fall between 5% to 7%, although expected at the lower end of that range.

The resulting in full year margins that fall between 5% to 7%, although expected at the lower end of that range.

In pork, we expect similar performance during fiscal '22 to what we accomplished during fiscal '21. Equating to a margin of between 5% and 7%. In international and other we expect margins of 2% to 3% as capacity expansions and strong global demand support volume growth and improved profitability.

Equating to a margin of between 5% and 7%.

In international and other we expect margins of 2% to 3% as capacity expansions and strong global demand support volume growth and improved profitability.

Our segments individually and in aggregate have clear and compelling role within Tyson's portfolio strategy. They deliver diverse counter cyclical performance that supports the company's long term earnings objectives and deliver strong value for shareholders. I will now turn the call back over to Meghan for Q&A instructions.

I will now turn the call back over to Meghan for Q&A instructions again.

Thanks, Stuart. We will now move to your questions. Please recall that our caution on forward-looking statements and non-GAAP measures apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.

Will do. We will now begin the question and answer session. To ask a question you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. And to withdraw your question, please press star then two. And at this time, we will pause momentarily to assemble our roster. And the first question will come from Ben Bienvenu with Stephens. Please go ahead.

And the first question will come from Ben <unk> with Stephens. Please go ahead.

Hey, thanks, good morning, everybody. Good morning, good morning. So I want to ask that in the commentary on the guidance the productivity savings of 300 to 400 million for this year and $1 billion by the end of 2024. Could you talk about how much of that you expect to be realized on a net basis to the bottom line and how much of it might be reinvested back into the business to drive growth?

Good morning, good morning.

So I want to ask that in the commentary on the guidance the productivity savings of 300 to 400 million for this year and $1 billion by the end of 2024.

Could you talk about how much of that you expect to be realized on a net basis to the bottom line and how much of it might be reinvested back into the business to drive growth?

Ben. Good morning, Stuart here. Look we're trying to drive as much of it is possible to the bottom line, but keep in mind that our assumptions around what's going to drop to the bottom line are already embedded in the guidance that we've given you by segment. But that's the short story.

What's going to drop to the bottom line are already embedded in the guidance that we've given you by segment.

But that's that's the short story.

Okay, perfect. And then if I look at the balance sheet, even with a pretty substantial increase in capital expenditures for 2022, you're going to have a cash build potentially though, I know Stuart you noted some commentary on the business. The working capital being a use of cash in 2022. Could you talk about what you would expect that use of cash to look like/ So that we can get a sense of what the cash balance at year-end looks like. And then along the same lines, you talked about reinvestment in M&A. What is your prioritization of that relative to potentially share repurchase given that you've upped the authorization there.

And then if I look at the balance sheet your.

Even with a pretty substantial increase in capital expenditures for 2022.

Youre going to have a cash build potentially though I know Stuart you noted some commentary on the business.

The working capital being a use of cash in 2022 could you talk about.

what you would expect that use of cash to look like/ So that we can get a sense of what the cash balance at year-end looks like. And then along the same lines, you talked about reinvestment in M&A.

What is your prioritization of that relative to potentially share repurchase given that you've upped the authorization there.

Okay, right, let me unpack that a little bit. So yes look we're super pleased with the way the year has worked out. This is really a diverse portfolio that's delivered a great result, and that's driven the increase in cash so sitting at one-two times leverage we've got $1 billion of that that will come through this year, we're planning to pay that down.

This is really a.

<unk> diverse portfolio, that's delivered a great result, and Thats driven the.

increase in cash so sitting at one-two times leverage we've got $1 billion of that that will come through this year, we're planning to pay that down.

All of that that will come through this year, we're planning to pay that down.

We also, as you've called out, we're going to have a much larger expenditure on CAPEX, which is going to be great for investors. And as our business grows, that's going to consume some working capital regular working capital. In addition to that, we've got a number of one-off payments that we expect to payout this year, which are pretty meaningful and to characterize that is around $1 billion of deferred taxes related to the cares Act. Taxes that are owed on the sale of the pet business. As well as some payout of the litigation accruals that you've seen in our books.

As you've called out we're going to have a much larger expenditure on capex, which is going to be great.

Investors.

And <unk>.

As our business grows that's going to consume some working capital regular working capital. In addition to that we've got a number of one off payments that we expect to pay out this year, which is a pretty meaningful and to characterize that is around the vision.

Of deferred taxes related to the cares Act.

Taxes that are owed on the sale of the pet business as.

As well as some payout of the litigation accruals that you've seen in our books.

Okay. Thanks to M&A, maybe the last question on M&A versus buyback. Look it's a normal course, we don't comment on any specific M&A, but we've shed the levers in our business. We have successfully pulled all of those levers over the last number of years and I think that's been to good effect, we don't imagine that we're going to change that this year.

M&A versus buyback look it's a normal course, we don't comment on any specific M&A, but we've shed.

the levers in our business. We have successfully pulled all of those levers over the last number of years and I think that's been to good effect, we don't imagine that we're going to change that this year.

Thats been to good effect, we don't imagine that we're going to change that this year.

Great. Okay fair enough, great. Thanks, and look forward to catching up with you guys at Investor Day. Thank you. Thank you. The next question will come from Ben Theurer with Barclays. Please go ahead.

Thank you. Thank you.

The next question will come from Ben <unk> with Barclays. Please go ahead.

Hey. Good morning, Dani, Stewart. Good morning for taking my question Congrats on the results now. Just to unfold one thing and maybe you can help us a little bit on what you're planning into 2022. So clearly it feels like a lot of your growth in the quarter was impacted by a lack of labor, be it in beef and pork I mean, you've pointed out in the segment commentary is there was a lot around labor shortage. And we know you've been investing in people, but what do you have to do looking into 2022 to overcome these headwinds on the labor market just in order to get actually the volume out? Do you want to get out? Because it seems like you have the assets, but you don't have the people to process. Is that a fair assumption?

Just to unfold one thing and maybe you can can help us a little bit on what you're planning into 2022. So clearly it feels like a lot of your growth in the quarter was impacted by a lack of labor be it in beef and pork I mean, you've pointed out in the segment commentary is there was a lot around.

Labor shortage, and we know you've been investing in people, but what do you have to do looking into 2022 to overcome these headwinds on the labor market just in order to get actually the volume out do you want to get out because it seems like you have the assets, but you don't have the people to process that a fair assumption.

Let me, let me take that, Stuart and good morning. Labor has been very challenging throughout the year, but, as we've mentioned in the script earlier, we are seeing a light at the end of this tunnel. We're seeing our ability to get plant staff. I think from a poultry perspective, for example, we're almost fully staffed since November 1st. We've made great progress across prepared foods in our beef and pork businesses.

Labor has been.

Very challenging.

Throughout the year, but.

No.

We've mentioned in the script earlier, we are seeing we're.

We're seeing a light at the end of this tunnel.

We're seeing.

Our ability to get plant staff.

I think from a poultry perspective for example, we're almost fully staffed.

<unk>.

November one we've made great progress across prepared foods in our beef and pork businesses.

So we're gaining on that post the close of our vaccine mandate. So we're very optimistic about '22, but in addition to having a labor shortfall, which is constrained capacity. We've also had just capacity shortfall in some key categories, for example, ready to eat products that would be for the more value-added poultry and also for prepared foods. And again, we're just now bringing on two new case-ready beef and pork plants. To enable us to have more capacity than they are in a startup mode. So yes, labor has been a challenge. We're seeing progress.

Just.

Capacity shortfall in some key categories for example, ready to eat products.

would be for the more value-added poultry and also for prepared foods. And again, we're just now bringing on two new case-ready beef and pork plants. To enable us to have more capacity than they are in a startup mode. So yes, labor has been a challenge. We're seeing progress.

To enable us to have more capacity than they are in a startup mode. So yes labor has been a challenge we see.

We're seeing progress.

We're very excited about '22 from that perspective. We believe we've got the worst behind us. And we're looking forward to that but we're also we've got 12 new plants going under construction to deliver more capacity. We have strong demand for that. And so we look forward to what that will deliver for us not only this year. But also in the coming years.

And we're looking forward to that but we're also we've got 12 new plants going.

Under construction to deliver more capacity in.

We have strong demand for that.

And so we look forward to what that will deliver for us not only this year. But also in the coming years.

But also in the coming years.

Okay, and then within prepared foods I mean, clearly we're seeing the headwinds from the input cost most here and just you holding back a little bit on pushing through price with that operating income margin. Adjusted down to a little less than 2% now the guidance for next year basically imply something flat. Does that mean on over the course of the year we should just think about still headwinds in the first half and as pricing comes through in the second half, we're going to see that picking up a little bit or how should we think about the cadence of margins into 2022 and the prepared foods business?

Down to a little less than 2% now the guidance for next year basically imply something flat.

Does that mean on over the course of the year.

just think about still headwinds in the first half and as pricing comes through in the second half, we're going to see that picking up a little bit or how should we think about the cadence of margins into 2022 and the prepared foods business?

I'll make a couple of comments and I'll pass that on to our expert Noelle Omara, who leads our prepared foods businesses. You characterized much of it. We're trying to absorb the rapid inflation predominantly in pork products and meat.

Prepared foods businesses and so.

It's you'd characterize much of it.

Trying to absorb that.

The rapid inflation predominantly in pork products and meat.

<unk>.

As we go with this branded portfolio that we have to the marketplace. It's no different than any other CPG company has dealt with. You are trying to balance share in price and it takes a little bit of time, unlike the commodity portion of our business say beef and pork.

You are trying to balance sheet.

Share in price and it takes it takes a little bit of time, unlike the commodity portion of our business say beef and pork.

It takes a little more time to get that executed. We're looking for ways always looking for ways to try to expedite that process, but it takes a bit to be able to get customers aligned to be able to get promotional and those activities are aligned. But let me start with that and I'll toss it over to Noel to add some color as well. Sure. Thanks, [Dani.]

Customers aligned to be able to get.

Promotional and.

And those activities are aligned but let me start with that and I'll toss it over to Noel to add some color as well sure. Thanks Tony.

As we mentioned, demand continues to be incredibly strong across the portfolio. Our Q4 performance was impacted because of the inflationary environment accelerating faster than anticipated. Despite the unprecedented inflationary headwinds, the actions that we took in the second half of '21 and the beginning here of '22. I expect will allow us to offset the headwinds and drive sequential improvements in profitability.

I expect will allow us to offset the headwinds and drive sequential improvements in profitability.

Okay perfect. Thank you very much.

<unk>.

The next question will come from Peter Galbo with Bank of America. Please go ahead.

Hi, everyone. Good morning, Thank you for taking the question. Good morning. I guess, [Dani] and Noel I'd like to get your thoughts on this. As you are taking a lot more pricing in prepared and I guess across the rest of the portfolio. What are you seeing from a consumer perspective in terms of trade down? Are elasticity is still kind of holding or I should say holding is inelastic level or are you starting to see just some of that roll through and how do you think about that into '22 as prices continue to go up?

Good morning.

I guess.

Donny and Noel I'd like to get your thoughts on this.

As you are taking a lot more pricing.

In prepared in I guess across the rest of the portfolio.

What are you seeing from a consumer perspective in terms of trade down.

Elasticity is still kind of holding or I should say holding is inelastic level or are you starting to see.

Just some of that roll through and how do you think about that into 'twenty two as prices continue to go up.

Sure, let me take that so demand continues to be strong across the portfolio in both retail and food service. We're pleased with the market performance we're seeing despite the price increases. The elasticity has been less than historical models would have predicted.

We're pleased with the market performance were seeing despite the price increases the elasticity has been less than historical models would have predicted.

We're seeing penetration and by rate increases versus pre-COVID-19 levels across categories as Tony referenced we've had our 13th consecutive quarter of share growth that will continue to learn and adapt as the landscape at all.

No. That's helpful. Thank you and then and then Donnie. Just in terms of the productivity plan and the Capex. Is there a way for us to think about it? It's some helpful detail on the slides, but just to think about it by segment.

Just in terms of the productivity plan and.

And the Capex.

Is there a way for us to think about it.

Helpful detail on the slides, but just to think about it by segment.

Well, let me start Peter was saying it applies to all segments. The first part of the program has to do with operational and functional excellence and quite frankly that is really doing bad our jobs better taking out ways to removing bureaucracy. And that's primarily targeted against our finance human resources and procurement groups. It's executing at a much higher level. There is another component that is digital solutions.

<unk> to all segments.

In the first part of the program has to do with operational and functional excellence and quite frankly that is that is really.

doing bad our jobs better taking out ways to removing bureaucracy. And that's primarily targeted against our finance human resources and procurement groups. It's executing at a much higher level. There is another component that is digital solutions.

Against our finance human resources and procurement groups.

It's executing at a much higher level.

There is another component that is digital solutions.

It's about $250 million in recurring savings and that's more on the operational side, the supply chain planning logistics and warehousing. So you can think of that in that bucket and that's across all businesses. In fact, the first two across all businesses and then third, automation. Leveraging robotics and technology.

Leveraging robotics and technology.

And we are spending significantly a significant portion of the $2 billion in capital that we're spending are a disproportionate amount of that is going against the capacity expansion in these 12 plants that we've talked about over the next three years. But in addition to that, it's to put it is to put automation and technology and to eliminate difficult higher turnover jobs Think, for example, the bone automation, whether it would be for the white meet or dark meat.

Higher turnover job think for example, the bone automation, whether it would be for the <unk>.

<unk> meet our dark meat.

In terms of material handling and you would see more of that in our prepared foods group and then you've got, if we think about outside the United States, then we just have a, I'd say a plethora of automation and technology and our digital footprint as we build those plants up outside the US.

Sure.

If we think about outside the United States, then we just have a I.

I'd say, a plethora of automation and technology and our digital footprint as we build those plants up.

Out of the U S.

Sure.

The next question will come from Anoori Naughton with JPMorgan. Please go ahead.

Hi, good morning. We wanted to get some additional color on some of the chicken initiatives you discussed. You talked about optimization efforts, increasing the harvest capacity by 10%. Over what timeframe are you thinking you'll be able to achieve that level of capacity expansion? And does the run rate EBIT margin of 5% to 7% already contemplate that higher fixed cost leverage from these efforts?

We wanted to get some additional color on some of the Chicken initiative do you discussed you talk.

Talking about optimization efforts, increasing the harvest capacity by 10%.

Over what timeframe are you thinking you'll be able to achieve that level of capacity expansion and does the run rate EBIT.

EBIT margin of 5% to 7% already contemplate that higher fixed cost leverage.

From these efforts.

Great question, let me I'll start out and then and give you some very top line stuff. And I'll flip it over to David Gray, who leads our our poultry group. Think of this in terms of the 5% to 7% being a waypoint and we've communicated that we think by the middle part of '22 that that's where we will be. That's not the goal, that's the way points. And we backed into that.

Flip it over to David Gray, who leads our our poultry group.

Think of this in terms of the 5% to 7% being a waypoint and we've communicated that we think by the middle part of 'twenty, two that's where we will be that's not that's not the goal the way points.

And we backed into that.

But if you think about those building blocks that are necessary to get there and beyond. It's really starting with volume. We've talked a lot about the hatch issue that we've had in the male.

Really starting with volume.

We've talked a lot about the hatch issue that we've had in the mail and.

But as we move into '22 we're already seeing great results remember this. This mail that we put in is not new to the world. It's one we've used and deliver great results for years. So we have a great deal of confidence in that. But it's also efficiency it's about running that capacity and not having to go to the outside and buy as much boneless skinless breast meat as we have in '21.

This mail that we put in is not new to the world. It's one we've used and deliver great results for years. So we have a great deal of confidence in that but it's also efficiency it's about running.

That capacity and not having to go to the outside and buy as much boneless skinless breast meat as we have in 'twenty one.

And then labor I mean, I mentioned earlier. We're back to near complete staffing in and we're seeing some really really good result from that. And. Our team is excited in terms of just the efficiency and improvement we've seen since. Completing our vaccine mandate on November one. But. This comes down to an execution story and volume is absolutely critical to getting us to the way from one to five to seven but also in terms of taking us into the future and with that let me flip it over to David. He may add a little more color to that just a little bit of color. Johnny Thank you very much for the opportunity.

We're back to near complete staffing in and we're seeing some really really good result from that.

And.

Our team is excited in terms of just the efficiency and improvement we've seen since.

Completing our vaccine mandate on November one.

But.

This comes down to an execution story and volume is absolutely critical to getting us to the way from one to five to seven but also in terms of taking us into the future and with that let me flip it over to David.

He may add a little more color to that just a little bit of color. Johnny Thank you very much for the opportunity.

And again I think it is critical for us to state that volume is a critical pillar for that but we also have a very structured success program that we built across our organization, where we're focused on being the most sought after place to work we're focused on servicing our customers growing our optimal products and brands and performing with the best hatching as a component of that and again.

We are seeing sequential week over week improvement and feel good about the plan that we have in place relative to the hedge but we are also working on other imperatives within our business and a lot of this really began within the Q4 timeframe. We are increasing our investment in dark dark meat deboned capacity. There was also significant price investment or improvement that we realized within the quarter and ultimately we are.

Optimizing our plant efficiency ahead of our increased harvest.

<unk> are coming from price mix volume spend and labor in short we are driving operational excellence across our poultry segment and we are aligned on that plan I would tell you. We have the right plan and we have the right people to make sure that we execute on the fundamentals of our business.

Okay.

The next question will come from Alexia Howard with Bernstein. Please go ahead.

Good morning, everyone.

Good morning, Brian.

So can I ask first of all about the.

The labor cost implications for the longer term I mean, you're obviously spending.

Presumably rising wage rates and so on.

How much do you expect.

The entire labor costs to be above pre pandemic level. Once all the doctors baffled and then I have a follow up.

Thank you for the question.

I would tell you that.

As we've stated we.

We have to win with team members, we have to be the most sought after place to work and we've done a number of things already to try to do that.

The recognition that.

That the workforce today, they have many many options in there.

There are a few people chasing.

The number of jobs that are actually out there.

So as we've talked internally, we're not trying to solve the labor problem for them.

Erica we're trying to solve for Tyson foods, and we want to give people an option, we won't give them a better option and we think the key to the staffing plant, but more importantly, being able to service customers and executed at a high level absolutely starts with people so the $24 an hour.

A number of things but.

It is it's the benefits that go with that we've had to enhance a number of those things do things like scheduling different <unk>.

Differences.

Most.

Paul shifts are being very creative in each locations childcare as a component of that we've experimented with on site health plantings as another we've experimented.

But we.

So we're trying to be creative and.

Trying to make sure that we're positioned well to have a place people want to come to work and we see that as being critical to our future success.

And so that's what we're doing $24 an hour.

I would tell you that maybe.

Maybe leading in the marketplace, but it's I think it's also a competitive wage and so we want to be on the leading side of that and so that is our intent. That's how you can think about as we think about labor going forward, we see that as the cost of of.

Of inflation and the cost of labor going forward.

Great. Thank you.

Just as you look out to fiscal 'twenty two.

What do you see as the biggest uncertainties and risks.

Sounds that you're fairly confident in the chair.

Lodging recovery, but across the business what do you see as the biggest uncertainties.

From this perspective today.

Sure I would tell you that.

In all my years of being in this business.

There are always.

Risks that come up.

The one thing I am certain of is as we get into 'twenty two we will.

Can be something happened we had anticipated if you go back to this time a year ago.

We had we thought we had a pretty solid plan around and poultry around grain price our pricing relative to green and then we saw a tremendous increase in the cost of grain and we were sitting with the fixed pricing on so much. So those type of things happen what I can tell you and why we're excited.

Is that.

We've adjusted our model our pricing model and.

So that.

We've derisked it not only for us, but also for our customers. So that when there is inflation.

Then we're in a position, we can adjust pricing with those customers and our relationships with them.

Are really second to none and these have been really.

Good conversations it's been a win win.

Approach in these conversations and we're proud of that and it starts with that relationship with the customer so.

<unk> moved and Derisked, our model relative to pricing and inflation and that we believe puts us in a better position in terms of labor.

I would anticipate.

Our new COVID-19 variance or something that the vaccine.

Not.

Protect against but I can tell you that we took a bold bold action to do everything we need to do to protect team members and we saw it as an investment and de risking of our business.

Just by having a vaccinated workforce and so we believe that's one less thing we'll have to deal with this year. That's one less thing we're seeing in terms of complexity to our business.

Great. Thank you very much I'll pass it on.

The next question will come from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes, Thank you and good morning, everyone.

Good morning.

So maybe just.

Bit of a clarification question.

On the guidance and as we think about kind of what's embedded in the segment margin assumptions can you help us think.

At the total company level, what level of kind of non raw material inflation is assumed for things around logistics and labor and packaging.

<unk>.

Two in there as well.

Is assumed on a year on year basis.

Feed cost in the chicken segment.

Thanks, Adam I'll start with it and I'll pass it over to Stuart <unk> cover.

Maybe in greater detail on some of those non grain.

Positioned ourselves from a from a poultry perspective as well as from our prepared foods perspective, so that we can respond to a inflation whether it be green labor.

Transportation warehousing costs, which are.

The biggest ones packaging packaging and ingredients have all gone up in price as well.

In fact, it might be easier for me to tell you what hasnt.

What what component Hasnt seen inflation in this this past year.

But we think we've got our model positioned to adjust for that.

Around pricing and responsiveness, and we don't expect customers to pay for our inefficiencies.

Wed like to think that we have relationships with customers that allow us to be able to take to them.

The inflation that we see in the marketplace and be able to pass pass that on ultimately to the consumer.

So that's the way we've thought about our model that's how we've adjusted our model and it's been a year long really a year long event doing that.

And we are in a pretty good place right now with respect to chicken I think.

Based on today's current level of inflation. We are currently caught up with that inflation with pricing across the chicken segment, we're putting that pricing in place and prepared foods and of course, our commodity businesses of beef and pork those respond more rapidly.

Two to inflation.

And so those are working as designed as well Stewart would you like to add any color to that sure Tony Adam just a couple of points to make here. So first of all I had a question early on about the savings.

Thats, a three 3% to $400 million is coming through as a benefit in the year.

Stated with you that obviously volume is increasing so youre going to see some increase from volume and of course.

We're continuing to pass through.

Pricing I didn't have the benefit of some mix.

When you look at the top line of the business, but keep in mind and actually when you look at the cost keep in mind the guidance around beef, which is which is lower than last year right and therefore on beef you should expect to see both the cutouts, Paul and you should expect to see the capital cost increase and that's going to be that can be part of it perhaps a cut.

Other things to keep in mind.

Our ingredient costs that are outside of Greens thinks that cooking oils, you've seen the price of oil increased.

Distribution is up and.

We've had 13 strong quarters of share gain in our prepared foods business and that business will likely invest money behind our.

Our brands this year to make sure that that kind of momentum continues so.

That's probably a run through through the big items.

Alright.

That's really helpful and then on the productivity.

You talked to about it look it's a bit more of a gross productivity action, where you hope to capture as much as you can to the bottom line or you choose to reinvest but can you help frame kind of the scope of the spend that that productivity is going after obviously it wouldn't.

Have that much impact on some of the direct raw materials in terms of the feed ingredient or cattle hogs.

Thank you bye.

What's the right denominator to think about the scope of the savings.

Over a couple of years, yes.

It's complicated in that business close because you've got all the commodity.

Inputs, if you sort of pull those off but.

I don't know that I have got a great number to put to you to give to give that what I would go back to as your starting point, which is.

We hope that that drops the bottom line issue not a hope strategy actually we have a very strong game plan here to drive these costs to the bottom line and they are part of.

Part of our equation for next year Youll see that I mean, that's part of our guidance the shape of next year looks good.

Prepared foods and chicken, both showing improvements strong improvement from the fourth quarter beef still expecting a very strong year.

Despite lower numbers than we had this year. So I think the shape of things looks good those savings are embedded in the.

And the forecast that I've given.

If I may answer to add one more thing to that.

Every one of these savings that we've talked about over the next three years.

Have a program management office, and we track that to the bottom line, we have built that into our 'twenty two plan and if you look at the out years of 23% and 24. We've also built that into operating income we did not count it unless we could show at hitting.

The operating income line of the business. This is we did we've done our work here to make sure. This was not a sleight of hand, but a true delivering of results and more importantly.

Delivery of a much much better process all the way around.

Alright, I appreciate all that color I'll pass it on thank you. Thank you.

The next question will come from Ken Zaslow with Bank of America Montreal.

Good morning, everyone.

Good morning, gentlemen.

Just had a couple of jobs, apparently at Comerica bank of Montreal, but couple of questions.

You said you cover you.

Actually covered cost.

With pricing on the chicken business.

As of now.

Help me understand so does that mean that the issues right now are really operational issues and then as you move into the new year.

And our price on top of that as your pricing contracts come to.

Anniversary is that how to think about it or did I misunderstand.

I think as Ken. Thanks, I think it's probably more of a point in time my comment was as of today. We have we are now we have our pricing at a point where it covers the cost of inflation. We've also had during the quarter.

Most recent quarter, we've had issues with labor availability and efficiencies associated with that but.

But we're now step so as.

I've mentioned that in terms of.

Go forward position.

We will be fully staffed and again I'm speaking im speaking of chicken here, but.

We will be fully staffed will be far more efficient.

David and his team are laser focused on the execution.

Execution excellence in the business and we're seeing great progress in there.

Noel and her team and prepared are doing exactly the same thing. So we're optimistic going forward. We believe the we believe the worst is behind us and we're excited about what we're seeing in our Q1 and what we'll see for the year is very much in line with what we project.

So just so I understand that what is where.

The next year or two is really in your control as you probably know.

Aligned more with industry on the pricing and the cost structure.

On the cost not the cost structure, but it's more right now.

<unk> internal improvements that will drive the next year or two versus your now relatively capturing what the market is giving to you on the pricing versus the corn side is that a fair assessment.

It's fair and largely accurate.

The thing I would add about that is in and some of the more branded part of the portfolio. There is typically a lag between inflation and the point, we're able to get pricing.

We're looking.

Constantly at ways to try to shorten that cycle.

Our customers.

So think of that as being the differentiator there, but I would tell you much of what we have to do and the way we structured our models.

Execution excellence and I call that out specifically in the script will be.

Top of mind to all of us across all businesses and functions at Tyson.

If I could squeeze in one more and then I'll leave it there.

When you put in the capital spending that Youre doing it and I know, we all have to think about 2022, but when we think about 2023 2024, what do you think the returns on that would be.

And does that enhance either the stability of your model or the growth algorithm of your model as you are now deploying.

<unk> capital that it's almost like an acquisition right youre not actually make an acquisition, but you're putting enough capital. There there should be a return on that that may be something changes in 2023, 2024, and I'll leave it there and I appreciate your time.

Yes, I will start with that and Stuart may want to add something to it but.

<unk> that we have the return on that invested capital.

We certainly understand that we've had a few issues in delivering that over the past.

But.

I will tell you that return on invested capital as part of the entire leadership team scorecard. So we're improving those dollars are spent against a demand that is known and a return that is that is known and so we feel very confident about the returns on those businesses and.

So.

We're not we're not concerned about.

The fact that we're going to get.

Really good return on that investment, but we think it versus other options as a as a much better return.

But it's still hours do ultimately you still have to execute.

Yes, Ken just a couple of things. So first of all we're targeting double digit returns and let us shape via the guidance as we move forward. So you get the timing of that right, but I mean, we have strong returns yet in terms of the algorithm is going to do two things for US first of all it's bringing some of the savings we're talking about $3 to 400 man.

It is providing a better and safer workplace for our team members.

And let's not forget that there's going to be.

Considerable expansion of capacity, particularly in the international business on a percentage basis.

So that that is going to procure that future growth. So we feel great about it the numbers are big but one thing about internal capex, exactly where you're putting the money exactly what youre getting for it.

Great I appreciate guys take care.

This concludes our question and answer session I would like to turn the conference back over to Donnie King for any closing remarks. Please go ahead.

Thanks again for your interest in Tyson Foods, we look forward to speaking again soon and hope to hear from you at our Investor Day on December nine.

Have a great day.

The conference has now concluded. Thank you for attending today's presentation you may now disconnect.

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Okay.

Q4 2021 Tyson Foods Inc Earnings Call

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